Cube Report (12 Jan 2021) – Why not price GAW for perfection?

Cube Report (12 Jan 2021) – Why not price GAW for perfection?

Good evening!

I’m here with a late edition of the report. Of particular interest to me are:

  • Games Workshop
  • Appreciate

Games Workshop

  • Loading stock data...
Market cap £3.6 billion
RNS Trading Statement
Writer disclosure Long GAW.

This has been one of my more enlightened purchases of recent years (at least, that’s what the share price says).

Stunning results today. In the words of CEO Kevin Rountree, it’s “another cracking performance”.

Without any boost from the lumpy royalties receivable line item, there is 55% growth in operating profits:

Today, the share price managed to fall 7% despite the prior update indicating H1 sales of merely £185 million (actualy result: £186.8 million) and PBT of not less than £90 million (actual result: £91.6 million).

Let’s immediately check the outlook section for any dark clouds on the horizon.

There’s not much in it, however, if you’re looking for concrete forecasts. Instead, you get a commitment to reasonable action that, to be frank, I find incredibly encouraging.

I’m much more interested in a commitment to ignore the share price than I am in concrete management forecasts:

We will continue to do what is right for Games Workshop and our customers. We will focus on what is in our control; delivering on our operational plan rather than worrying about, for example, any short term share price volatility or the weather. Most days that’s making sure management is doing the right thing for Games Workshop. Ensuring that we have the right person in the right job helps enormously and this is even more important as we continue to grow and we recruit additional senior people. Our biggest risk is senior management becoming complacent. I will continue to do my best to ensure that does not happen.

Segment breakdown

Retail has lost its lustre, but the other segments are doing great:

Some comments on Covid-19:

In the period reported, Covid-19 made it more challenging for us all. Globally, all of our locations have been working within new health and safety guidelines to ensure we deliver on our number one priority: to protect the health, safety and wellbeing of our staff, their families and our customers. 

And specifically in relation to Retail:

The majority of our 529 retail stores have been restricted or closed during the period, following local government guidelines. It was great to see, during the periods our stores were allowed to open, our store managers doing a fantastic job of delivering their normal outrageous service for our loyal customers during such a challenging time. Our retail offer is one of our unique services. You’ll find no better place to immerse yourself in the Warhammer HobbyWe made no claims for financial support or subsidies from government during the period.

My buddy Vivek has GAW as his largest position, and he wrote on Twitter today:

Worth chewing on this, I think!

Thinking about my own choices during lockdown, I realise that I’ve played more chess than usual – and I’ve also learned how to play Bridge and Catan! Without lockdown, I probably wouldn’t have done.

Given the incredible success at GAW over the past year, perhaps it’s fair to say that lockdown doesn’t hurt companies who provide indoor home entertainment! I also own shares in the gambling company 888, for example – profit forecasts over there are excellent, too.

Back to Games Workshop:

Our internal measures are being met with the exception of ‘out of stocks’ which are currently running higher than we’d like.

Things must be pretty good, when your biggest problem is being sold out of too many items!

Balance sheet/capital allocation

The company is keeping lots of cash on hand – a buffer of at least £50 million, according to its current policy. There is £96.5 million on today’s balance sheet.

Staff bonus – an extra £5 million discretionary bonus was paid to staff in December. It’s easy for me to say this when the share price is riding high, but I fully endorse this decision!

Manufacturing – there has been a big ramp up, and there’s potential for open-ended growth:

We have been making miniatures for decades and with our new factory nearly complete, the team have delivered another step change in output – 30% more than this time last year. The new factory is not fully operational but the team have shown how flexible they are and with a bit of nous and determination have delivered everything we asked of them…  We are also securing a further piece of land adjacent to Factory 2, to give us future options.

Licensing income – this is unpredictable, but I’m quietly optimistic that it will turn into an even more valuable income stream over time.

The company appears to share my optimism:

We are currently strengthening our small, dedicated team of experts in Nottingham with in-country resources in North America, Japan and China to support.

My view

There’s not much more to add at this stage. Of course this share is richly priced. But perhaps not outrageously so, when you consider after-tax net income of £74 million in six months.

That’s more than the profit generated in the previous financial year. With that sort of profit growth, and the potential for it to continue without any obvious limit, is it not reasonable for such a high-quality company to be richly valued?


  • Loading stock data...
Market cap £68 million
RNS Q£ and Christmas trading update
Writer disclosure Long APP.

This is one of the shares that hasn’t really worked out for me – but I’m stubborn, so I’m still holding it.

I was rewarded today with a 10% increase in the share price.

It provides retail gift vouchers – a crummy business to be in during lockdowns.

But lo and behold, the three months to December were pretty good:

  • underlying billings up 13.1% (versus Q3 2019) to £96.3 million.
  • Faster growth in compared to corporate sales.
  • digital sales multiply by almost 4x compared to a year ago, reaching £22.5 million.

Outlook is not bad:

The Group is expected to deliver a full year performance for the year ending 31 March 2021 at least in line with the mid-range scenario as set out in its 2020 annual report and accounts, although the latest lockdown measures may delay some revenue and profit until customers have more options to redeem their products.

Delayed revenue and profit is ok, if it has been “locked in” already by the purchase of Appreciate’s products.

Let me be clear: the year-to-date result is still bad (billings were down 40% in H1). But what’s exciting is the change in trend – if things get back to normal before too long, this really looks like it could perform well again. The uptick in billings in December strongly hints this to me:

Some nice comments from the CEO:

“I’m delighted to report that the Group has delivered a strong performance during its important Q3 peak trading period. As a seasonal business, the Group’s performance has reflected the swing to profitability that we typically see in the second half of the financial year and the acceleration of our strategy to strengthen our digital capability has ensured a Q3 performance well ahead of last year.

“We saw our busiest ever month in December…

“The accelerated implementation of our strategy over the last year has helped us deliver an improved performance through this key period, and has strengthened the Group’s proposition for consumers and corporates, leaving it well positioned for sustainable growth beyond the current financial year.”

My view

I’m stubborn, I have reasons not to accept defeat with this one, and it’s only a tiny percentage of my portfolio. So I’ll be holding on!

See you tomorrow!




Wordpress (3)
  • comment-avatar

    Thanks for this Graham – GAW one of my bigger holdings and took advantage yesterday to buy a few more on, what to me, seemed like a bit of “buy on the rumour, sell on the news” type reaction.

  • comment-avatar

    Hi Graham.  It’s great to have you back at the helm!  I too am a long term happy holder of £GAW and I agree with your friend that it’s hard to find too many negatives in yesterday’s report although there were one or two hints at possible problems ahead – the ERP implementation sounds like it’s gone somewhat awry and I get the feeling that overall they are struggling somewhat with the IT challenges of their stellar growth.  Probably all to be expected and I certainly trust the management to get on top of these issues eventually.  One thing that did give me pause was the December trading which they described as “broadly in line with our expectations” which sounds like it’s more under than over what they hoped for.  Given that December is explicitly cited under the Seasonality section of the report, presumably meaning that Christmas brings heightened sales (“the Group’s monthly sales profile demonstrates an element of seasonality around the Christmas period which impacts sales in the month of December”), then I took that as a mild amber flag that they may be signalling something of slowdown perhaps?  I wondered how you interpreted it.  To be fair, I’m scraping the barrel to find things to worry about here and long term I’m delighted to hold for the growth potential and excited by the collaboration with £FDEV and potential TV tie-ins etc.

  • comment-avatar

    Hi John,

    Some good points there but I think that to some extent is a function of their transparency. They admit when things don’t go as planned. Have worked in Banks most of my adult life and their IT systems/changes/consolidation/rationalisation are take your pick from:
    Mess / Delayed / reduced in scope / over budget but they tend to tout their leading infrastructure and control systems.

    Re December, RhmoboidMF1 of twitter (don’t know the gentleman personally) but has GAW at 40% of portfolio (I think) and his note re December was that mgt expectations are not the same as market expectations and as Graham says, as far as problems go, too much demand is one of the nicer problems to have.

    You also make a good point about the collaboration – presumably video games / TV will attract some new customers and I am glad management are taking a methodical approach to this to make sure they do not alienate their incumbent base.

    The share price weakness maybe a function of Buffetology being a forced seller (had 8.8% at 30 November and has a 10% concentration limit)
    Anyway – think that is enough confirmation bias from me.

    Happy New year all.

  • Your Cart